As in, you went to the app store and paid $0.99 to install an app that you’ve never even been given a chance to use before, and yet you handed over the money in blind faith.

If you’re scratching your head trying to remember, you’re not alone. PAY-TO-DOWNLOAD APPS ARE DEAD.

Customers don’t want to pay for apps before they use them, and they have zero tolerance for monetisation methods that disrupt the user experience once they’re inside the app.

Pretty tough ask to please the consumer these days, isn’t it?

The good news is that there is so much choice available to app developers in 2015 to not only choose ‘off the shelf’ monetisation models (more on that later) but also blendand adapt monetisation models to craft their perfect stream of revenue.

I’ve compiled the latest trends and insights into how developers are making BIG money from mobile apps in 2016.

In this guide we’ll cover:

The pros and cons of the 5 most popular monetisation models big money apps are using today

How to calculate potential ad revenue from mobile ads

Creative, non-traditional monetisation models being used by Duolingo and Snapchat

How do you choose an app monetisation model? 6 questions you need to answer

Freemium – LinkedIn, Spotify, Evernote

In a nutshell: Free but with locked features customers can choose to pay for if they wish

Freemium is becoming increasingly popular as it is so easily adapted to any app vertical, including media, utilities and social apps.

Offering limited time trials of freemium services is a great way to get people through the door and wanting to upgrade to the paid accounts.

Pros

Users who try before they buy are more likely to become engaged and buy down the track – Usually when they find they can’t live without your app!

Allows you to develop a large user base with the view of up-selling at the right time in their customer life cycle.

Cons

If you don’t offer enough features for free, your users may drop off

If you offer too many features for free, no one will want to upgrade

2. Subscription – Whatsapp, Apple Music, Netflix

In a nutshell: Free but with locked content customers typically must pay for to get any value from the application.

The revenue stream comes from the user paying the same amount of money weekly, monthly or annually to access exclusive content.

The subscription price is usually smaller than the one-time price to incentivise the user into a longer term commitment.

Pros

Results in a constant, repeated revenue stream

Forces you to continually deliver fresh, high quality content to retain your users

Leads to loyal and engaged app users

Cons

Doesn’t easily translate to all app verticals – More suited to service apps.

It can be hard to determine just how much content to provide for free and when to start charging

Subscription requires a massive committment from a first time user, as subscriptions have a reputation for being hard to cancel.

An initial free or discounted trial is therefore almost a prerequisite for onboarding new users.

3. Sponsorship – Runkeeper, Menulog, Pinterest

In a nutshell: Sponsorship involves offering advertising space within your app to brands who will offer your users exclusive content or discounts.

Sponsorship is one of newest and hardest monetisation methods to execute but is definitely one of the most effective. Pros

The ultimate Win-Win-Win scenario:

The developer wins by getting money from the sponsor, the sponsor wins by getting in front of potential new customers, and the customer wins because they are exposed to exclusive discounts and offers from brands of interest to them.

Minimal disruption to user experience

Model can be easily tailored to every app vertical and industry

Cons

It’s a relatively new model that hasn’t been as thoroughly tested as other options

4. In-app purchases – Candy Crush, Tinder, Snapchat

In a nutshell: Users can choose to buy virtual or physical goods from within your app.

Your immediate thought when I say in-app purchases might be games where you can buy extra credits and lives, or retail apps where you purchase actual goods through a checkout process.

BUT if your app doesn’t fit this bill, don’t rule it out too soon!

Every app can offer some kind of extra functionality, tools, enhanced features and deeper content.

Stuck for ideas?

A great place to start brainstorming monetisation opportunities is to look at your reviews, user feedback and analytics.

This is how Snapchat got the idea that another revenue stream could come through the small % of users who would want to replay a snap more than once ($0.99).

Tinder, similarly, noted that users were complaining about accidentally swiping left on a potential soul mate, so are now testing the effectiveness of allowing users to take back their mistake for $0.99.

Pros

There is minimal risk in implementing this model.

Works well with certain app verticals (games and retail apps especially)

Paid ads go for big scale over high margins. According to Monetize Pros, most developers will only generate $1.50 per thousand impressions of their ads.

So, this model is best suited to apps that have a huge userbase and are used frequently. If your app is quite niche and you don’t think you will honestly get tens of millions of users, you’ll get a lot richer by picking a monetisation model that earns higher revenue per user.

Feels unnatural in certain kinds of apps, such as utility apps that help users perform specific actions. (Think banking apps or city transport apps).

How to calculate potential ad revenue from mobile ads

The way that the revenue-gain is calculated is based on any of the following formulas (depending on the ad network and the advertiser):

CPI: install x ($-value per install, as set by advertiser) = revenue
Cost per install (you get paid for every time someone installs the app that’s being advertised after clicking on an ad in your app – provided that an app IS being advertised)

CPC: (1 x user-taps-on-ad) x ($-value per 1000 impressions, as set by advertiser) = revenue
Cost per click, also known as PPC – Pay-per-click

*Impressions is the number of times the ad has been seen. One impression means the ad has been seen one time.

I’ve left the $-value open-ended because it varies from advertiser to advertiser and can be anything…literally. Anywhere from $0.10 to $34.00 or more.

Offbeat monetisation models

These 5 monetisation models are the most popular categories dominating the app store today, but there are in fact dozens of options out there and no limits on how you can make money from an engaging application.

For example, Duolingo, the language study app, earns revenue by crowd-sourcing pieces of translation done by its students and selling them to companies like CNN and BuzzFeed for their international websites.

Weird, huh?

Tinder also got some extra cash a few years ago when Gillette paid for access to their user data for one of their marketing campaigns.

Gilette managed to prove that men without facial hair got more ‘swipe rights’ than men with facial hair, who obviously didn’t shave.

Will other businesses, industries or apps benefit from this platform’s core functioning?

Could they apply it to their own processes to achieve greater efficiencies or customer satisfaction?

If yes, you can ‘whitelabel’ your app and sell the code that the app is built on. This way, external parties can buy your app’s functioning at its core and apply their own branding to it.

How to choose an app monetisation model: 6 Key Questions

Ask yourself each of these 6 questions to figure out which monetisation model will best fit your app’s function and customers.

What is your user’s overall goal during an app session? How will each monetisation model impact them achieving that goal?

2. What vertical or industry is your app in and how would user experience be compromised as a result of each of the 5 monetisation models?

3. Is there a single moment in your app in which users experience discomfort or happiness?

By exploring your analytics, you may find that there is an ideal time in a user’s session when you can prompt them to engage in your monetisation stimuli, either to relieve their pain or to take advantage of their curiosity.

Monitor your drop-off points to identify when you could prompt users with a well timed freemium ad or in-app purchase.

This might manifest itself as premium content, cheats, hints or watching a 30 second video for a certain kind of credit.

Logan Merrick is the co-founder and Director of Buzinga, as well as one of Australia's most recognised entrepreneurs, keynote speakers, investors and mentors. His writing on startups, technology and mobile marketing has been featured in The Australian, Business Insider, Startup Smart, Smart Company, and more.